Saturday, January 30, 1999

Judge to rule
on trustees’
conflict of interest

Probate Judge Chang orders
Bishop Estate to turn over the
IRS' preliminary audit report

By Rick Daysog


A state judge has ordered the Bishop Estate to provide him by Monday with copies of the Internal Revenue Services' preliminary report on a four-year audit of the trust.

Probate Judge Kevin Chang yesterday said he will review the records and any related documents to determine if trustees have a conflict of interest in dealing with the IRS probe.

Bishop Estate trustees Gerard Jervis and Oswald Stender -- who have voluntarily recused themselves from taking part in the audit process -- are asking Chang to order all five trustees to recuse themselves from the audit process since the IRS investigation would place trustees' personal interests against those of the estate.

During a hearing before Chang yesterday, Stender's lawyer, Crystal Rose, said a panel consisting of estate in-house attorney Nathan Aipa; its Washington, D.C., tax counsel, Mark McConaghy; and court-appointed estate master Colbert Matsumoto have already stated that trustees have a conflict.

She added that the majority trustees are playing the "admissions card" in attempting to avoid recusal by claiming that the IRS audit is targeting the Hawaiians-only admission policy at the estate-run Kamehameha Schools.

"It is an understatement that there is a conflict of interest on the part of the trustees in relation to the IRS audit of the estate," Rose said.

"They need to let go; they need to give up control. They need to know what the duty of loyalty is."

The IRS delivered the preliminary findings of its exhaustive investigation of the estate on Jan. 4. The findings, known as IRS Form 5701s, are a preliminary notice that the IRS is proposing changes in the estate's operations.

The notices give the estate the opportunity to resolve or clarify any dispute it may have with the agency's initial findings.

William McCorriston, attorney for the estate's majority trustees, argued that there's been no showing of an actual conflict of interest on the part of individual trustees.

He cited a letter from Atlanta tax attorney N. Jerold Cohen, a former chief counsel for the IRS, indicating that trustees would not have a conflict at this stage of the IRS audit.

McCorriston added that the IRS audit is far from complete, and for trustees to step down from the process at so early a stage would take them away from the negotiations process.

"A complete delegation of those duties would be the height of irresponsibility," McCorriston said.

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